US Intervenes in Japan's Currency Market for First Time in 15 Years

The US has intervened in Japan's currency market for the first time in 15 years to prop up the yen, which recently hit a 40-year low against the dollar. The move is unusual from an FX perspective, as the US sold euros to fund its purchases of Japanese yen, rather than selling dollars directly. This suggests that the US may not want Japan to sell dollars on its own, weakening the greenback.

According to Goldman Sachs analysts, the US intervention is a coordinated effort with Japan to prevent further declines and quell volatility in the currency market. The sale of euros adds to the market's uncertainty, as it could be seen as an attempt by the US to control the value of its own currency.

Rising Treasury yields are also a concern for the US, according to Robin Brooks, a top economist at The Brookings Institution. He notes that Japan's interventions can push up US yields, potentially causing them to rise above 4.5%, a threshold closely watched by stock investors.

The yen carry trade, which has funneled tons of money into US markets over the years, is also under scrutiny. Apollo analysts believe that the trade has already broken down, as the US dollar-to-yen exchange rate has deviated from the spread between the yields on the 10-year government bond in the US and Japan.